European natural gas prices to fall this year

Baku, Azerbaijan, March 31

By Aygun Badalova - Trend:

European natural gas prices to fall this year as greater supply and the impact of lower oil prices more than offset higher demand, Tom Pugh, commodities economist British economic research and consulting company Capital Economics believes.

"European gas market looks set to be well-supplied this year and oil-indexed prices should continue falling in coming months," Pugh said in a report obtained by Trend.

Economist said that the price of UK NBP (National Balancing Point) gas, which is one of the most liquid and actively traded gas market hubs in Europe, had been on a downward trend since early 2014, but rebounded in the second half of last year.

With a limited demand response, economist expects NBP prices falling to 38 pence per therm by end-2015, from around 47 pence currently. (1 US dollar = 0.6126 British pound).

Pugh believes that there are three key reasons for expecting NBP prices to fall in 2015.

The first reason, according to the economist, is lower oil prices, which will continue to pull down European gas prices, as a large proportion of imports are still oil-indexed.

Second reason, he believes is that LNG imports into Europe could pick up this year. "European LNG spot prices have already risen above those in Asia at times this year, which should encourage more shipments into Europe," Pugh said.

"Finally, lower gas prices should not elicit a significant demand response, as could be expected in the oil market," economist said.

Between 2008 and 2012 retail prices for gas and electricity in Europe have risen, while wholesale prices have declined significantly for electricity and remained stable for gas.

In recent years the energy price gap between the EU and major economic partners has further increased: on average, EU industry gas prices are now three to four times more expensive than comparable US, Indian and Russian prices, according to the report on gas and electricity prices issued by the European Commission last year.

In the report the European Commission said that it believes it is important to maintain its commitment to completing the internal energy market in 2014 and further develop energy infrastructure. The report also highlighted the importance for the EU to further develop its energy infrastructure, diversify energy suppliers and routes, and speak with a single voice in negotiations abroad, as well as implement the EU legislation in order to complete the internal energy market.

European countries are too dependent on fuel and gas imports. Diversification of its energy supply sources and routes is one of the most important energy objectives of the European Union. The Southern Gas Corridor project is a solution the EU counts on.

The project envisages the transportation of gas from the Caspian region through Georgia and Turkey to Europe. This large project aims at diversifying the routes and sources of energy supply that will enhance energy security of Europe. The Southern Gas Corridor project will ensure Caspian gas supply to the European markets for the first time in history.

Aygun Badalova is Trend Agency's staff journalist, follow her on Twitter:@AygunBadalova

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